1. Field of the Invention
The present invention relates to financial securities, and more particularly, to a financial unit security having a debt component and an option component.
2. Description of the Related Art
A financial unit security is a combination of two or more individual securities that are coupled together and issued as a single unit. One example of a financial unit security is a combination of a debt instrument and an option instrument into a single structure.
A traditional convertible bond is a single debt instrument, i.e., non-unit. A holder of a convertible bond may have a right to receive interest until the maturity of the bond or an earlier redemption event, and has a right to receive the stated principal amount of the bond at maturity. Also, the holder may choose to convert the bond into shares of common stock or other specified equity interests of a corporate entity at a predetermined ratio at anytime. The ratio or “conversion ratio” is determined at the date of issue of the convertible bond by dividing the issue price of the bond by a conversion price determined by the issuer of the convertible bond at the time of issue. This ratio usually does not change during the life of the security absent so-called anti-dilution adjustments.
A secured debt security, e.g., an asset-backed security (ABS), is a security in which payment rights are secured by a pledge of specified assets of the issuer of the security. Each investor in the security has a secured claim against these pledged assets.
Issuers in the secured debt markets may not find sufficient buyers for their secured debt. The present inventors recognize an opportunity for these issuers to issue their secured debt by providing a product to sell to an alternative market, the unit investor.